Danson was born in San Diego, California, to Jessica (née MacMaster, 1916 – January 11, 2006)[5] and Edward Bridge "Ned" Danson, Jr. (March 22, 1916 – November 30, 2000)[6], an archaeologist and museum director. He has an older sister, Jan Haury (née Jessica Ann Danson, born January 11, 1944).[7][8] He was raised in Flagstaff, Arizona.[9] His ancestry includes English and Scottish.[10][11]

Danson began his television career as a contract player on the daytime soap opera Somerset. He played the role of "Tom Conway" from 1975 to 1976. He then spent a few years (1977–1982) as a doctor on the daytime soap opera The Doctors. He was also in a number of commercials, most recognizably as the "Aramis man".

In 1982 Danson was cast in his most recognizable role as the womanizing former baseball player and bartender Sam Malone on the NBC sitcom Cheers, wherein he has an on-and-off relationship with college-educated, sophisticated Diane Chambers. Though the show finished last in the ratings in the first season, it was well received by critics. Ratings slowly but surely improved in 1983 and by 1986 Cheers was one of the top ten shows on TV. The show had a run of 11 seasons and its finale (May 20, 1993) was watched by 80 million people, becoming the second most watched finale in television history at that time. It won four Emmy Awards for Outstanding Comedy Series and a Golden Globe for Best Series – Musical or Comedy. The show ran from 1982 to 1993, with Danson receiving 11 consecutive Emmy nominations and nine Golden Globe nominations, ultimately winning two Emmys and two Golden Globes. In 2002, TV Guide named Cheers the 18th Greatest Show of All Time. It was also included in Time Magazine's 100 Greatest Shows of All Time.

Although he was best known for his work in comedy, he also appeared in an acclaimed drama, Something About Amelia, about a family devastated by the repercussions of incest, which co-starred his later co-star on Damages, Glenn Close. He won a Golden Globe Award for Best Actor in a Miniseries or Television Movie and was nominated for an Emmy Award. In 1996, three years after Cheers concluded, Danson starred in the short-lived CBS sitcom Ink with his real-life wife Mary Steenburgen. In the same year, they starred as Lemuel Gulliver and his wife in an acclaimed television miniseries of Gulliver's Travels.

In 2007 Danson starred in the FX Network drama Damages as a corrupt billionaire, Arthur Frobisher. The role earned him an Emmy nomination for Outstanding Supporting Actor in a Drama Series but he lost to co-star Željko Ivanek. In the second season Danson became a recurring character instead of one of the principal cast. Nevertheless, Danson received an Emmy nomination for Outstanding Guest Actor in a Drama Series but lost to Michael J. Fox for his guest appearance in Rescue Me.

Danson starred in the HBO sitcom Bored to Death as George Christopher, the laconic, salubrious and sometime downright infantile editor of Edition magazine. Critics often praised Danson as being the highlight of the program, calling his character a "scene stealer".[12][13]

In March 2013 it was confirmed that Danson had signed a deal extending his stay on CSI for two more years.[15]

Following the cancellation of CSI, it was announced that his character would make a move over to the third spinoff show CSI: Cyber in the second season. The show was cancelled after two seasons.[16]

In 2015 Danson appeared in the second season of the TV show Fargo. He portrays sheriff Hank Larsson.[17] Since September 2016, Danson has appeared opposite to Kristen Bell as the character Michael in the NBC sitcom The Good Place.[18] He has both been nominated for and won numerous awards for his performance as Michael.

Danson and his first wife, actress Randall "Randy" Gosch (now professionally known as Randy Danson), were married in 1970 and divorced in 1975. Danson's second wife was producer Cassandra "Casey" Coates; they were married in 1977. On December 24, 1979, while giving birth to their first daughter Kate, Coates suffered a stroke. Danson spent several years caring for her and helping her recuperate. They later adopted a second daughter, Alexis.

Danson's affair with actress Whoopi Goldberg led to their divorce in 1993.[19] It is known as one of Hollywood's costliest divorces, reportedly costing Danson $30 million.[20]

While a guest on The Arsenio Hall Show in late 1988, he met actress Whoopi Goldberg, whom he described as "a sexy, funny woman".[24] The two became friends, co-hosting Help Save Planet Earth in 1990, a video guide to saving the environment (Danson played himself, Goldberg played the role of Mother Earth).[25] However while making Made in America in April 1992, the two became romantically involved—a pairing which was heavily featured in gossip tabloids such as the National Enquirer. The couple also appeared on the Rock the Vote TV special that same year,[26] as well as being set to star in a Paramount-produced version of Neal Barrett Jr.'s Pink Vodka Blues,[27] written by Marshall Brickman.

Danson experienced substantial negative press attention on October 8, 1993, after his appearance in blackface at a Friars Clubcomedy roast in honor of Goldberg. In his monologue, Danson made extensive use of offensive racial stereotypes, used the word "nigger" more than a dozen times, and ate a watermelon, angering such guests as Montel Williams and MayorDavid Dinkins.[28][29] Goldberg defended the sketch, explaining that she had helped write much of the material and referred Danson to the makeup artist who painted his face.[30] Danson and Goldberg issued statements emphasizing "the Friars Club tradition of raucous and over the top humor" and describing those offended as newcomers who "were uncomfortable with what to expect".[28] Substantial excerpts from the performance were later printed in Spy.[31] On November 5, 1993, Danson and Goldberg issued a statement signalling the end of their relationship.[32]

Danson's interest in environmental concerns was ignited when he was twelve years old and Bill Breed, then curator of geology at the Museum of Northern Arizona, introduced Danson and friend Marc Gaede to a game he referred to as "billboarding". Armed with an axe and saw, Breed, Gaede, and Danson ended up destroying over 300 outdoor advertising signs.[33]

Danson's interest in environmentalism continued over the years, and he began to be concerned with the state of the world's oceans. In the 1980s, he was a contributing founder of the American Oceans Campaigns, which merged with Oceana in 2001, where Danson is a board member.[34]

In March 2011, Danson published his first book, Oceana: Our Endangered Oceans And What We Can Do To Save Them, written with journalist Michael D'Orso.[35][36]